Chapter 13 and Chapter 7 Bankruptcy Proceedings
Chapter 7 Liquidation Proceeding and Chapter 13 Wage Earner Proceedings
Chapter 7 bankruptcy is basically liquidation. That means that a bankruptcy trustee can sell (“liquidate”) certain non-exempt property that you own at the time you file the bankruptcy case. The trustee uses the sale proceeds to pay your allowed creditor claims. In most cases, you will not have any assets that the trustee can sell because of state and federal laws that may allow you to keep necessities. These laws are called “exemption laws,” and the property that the trustee may sell is known as “non-exempt” property. If all of your property is exempt, the trustee will not sell any of your property.
Chapter 7 Eligibility
If you are an individual with primarily consumer debts and you want to file a case under chapter 7, your lawyer will examine your income and finances to determine if you have net disposable income with which to pay creditors. If you have net disposable income based on a calculation known as the “means test,” you may not be eligible to file a chapter 7 and may have to consider a chapter 13.
If your income is at or below the median income for your state, the means test will not apply and you qualify for chapter 7 relief, subject to other considerations which we can discuss.
The benefits of a Chapter 7 include:
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Relief from unsecured debts
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Clean financial slate
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End of creditor harassment
The disadvantages of a Chapter 7 include:
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The bankruptcy is reported to major credit bureaus affecting your credit standing for up to 10 years
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Non-dischargeable debts such as alimony, child support, and student loans
Chapter 13 Wage Earner Proceeding
For individuals that do not qualify for a chapter 7 bankruptcy or have other circumstances, a chapter 13 enables consumers to repay their debts over a three to five year period, depending on certain factors. Your repayment plan must be approved by the court, and you will have to make timely payments to the chapter 13 trustee as provided for in your court approved plan.
The advantages of a Chapter 13 include:
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Foreclosure avoidance
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Repossession avoidance
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Debt repayment management
The disadvantages to a Chapter 13 may include:
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Negative effect on credit standing
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Restriction on accumulation of new debt during your plan term
Exemptions in Bankruptcy
When you file for chapter 7 bankruptcy, federal law, in combination with Nevada law, allows you to exempt certain real and personal property assets from being sold by the bankruptcy trustee to pay off your debts. This means that you can keep a certain amount of real property, such as your home, a certain amount of household goods, tools of your trade, your vehicle, qualified retirement plans, and other personal property. Exemptions allow people to achieve a fresh start after filing a chapter 7 bankruptcy, by helping to ensure that they can still maintain a reasonable standard of living.
Nevada’s bankruptcy exemptions also play a role in chapter 13 bankruptcy. You have the ability to keep all of your property, but you’ll pay the value of nonexempt property through a chapter 13 repayment plan. If you choose to file a chapter 13 bankruptcy, your exemptions and net disposable income help determine how much you will have to repay creditors through your repayment plan.
